Diversification and Spinoff

Selling lead is an unusually profitable business. As Ethyl's 1995 report to shareholders blandly observes, lead additive sales accounted for 26 percent of gross revenues, but 74 percent of its profit. In 1995 the New York Times wrote of the profit bonanza Octel's then-owner, Great Lakes Chemical, had stumbled upon when, searching for sources of bromine for fire retardants, it landed in the TEL business.

Far from petering out, demand for leaded gasoline, while shrinking, has remained far stronger than anyone predicted, especially in the third world. Meanwhile, every other major producer has stopped making the additives, known as tetraethyl lead, or TEL. That has left Great Lakes with an unexpected flood of profits and 90 percent of a market that no one else will enter because of the environmental problems associated with lead and the huge capital costs of building a new plant.

Octel's old plant, along the Manchester Ship Canal outside Liverpool, bankrolled immense growth for Great Lakes, allowing it to double in size within five years (to $5 billion in annual revenue) following its acquisition of Octel, all the while maintaining a hefty 15 percent annual operating profit. As recently as 1977 Great Lakes had only $50 million in operating revenue.

Years of lead profits have funded major diversification efforts for Ethyl and its owners, led by the Gottwald family of Richmond. The company's annual report for 1996 revealed "a long-running strategy: namely, using Ethyl's significant cash flow from lead antiknocks to build a self-supporting major business and earnings stream in the petroleum additives industry."

By 1983 Ethyl had become "the world's largest producer of organo-metallic chemicals." It would expand its production for the petroleum industry (including the purchase of the petroleum additives divisions of Amoco and Texaco), as well as acquire interests in other specialty chemicals, plastics and aluminum products, oil, gas and coal. Ethyl would also invest billions in pharmaceuticals, biotech research, semiconductors and life insurance. At great expense, it would develop a serene corporate campus of seventy acres along the banks of the James River in Richmond.

As the science against TEL mounted and government regulation stiffened, Ethyl began a series of restructurings that today find its TEL business standing suspiciously alone. In 1989 Ethyl spun off Tredegar Industries, a group it created to hold its aluminum, plastics and energy businesses. For every Ethyl share they held, investors would receive prorated shares in the new company. Voilà! Limited liability. Later Ethyl would spin off its billion-dollar insurance company, First Colony Life. In 1994 Ethyl would split up its chemical and petroleum additives division and create a wholly owned subsidiary, Albemarle Corporation, named after the 100-year-old paper company that bought Ethyl (which retained its name) in 1962. One of the main enterprises of Albemarle, ironically, is supplying Ethyl with MMT under a long-term agreement. MMT is another gasoline additive (made of manganese and barely sold in the United States) with suspected health consequences. In 1994 Ethyl and its Albemarle offspring did a rousing $48 million of business together. Oddly, for a company that claims to be proud of its product (so proud that under an obscure provision of NAFTA it sued the Canadian government for outlawing MMT) Ethyl declined to tell Automobile Magazine in 1999 in which countries it sold MMT to refiners, presumably because it fears awakening consumers to the presence of its manganese additive.

Because it was itself spun off to a management team from Great Lakes Chemical, Octel remains highly concentrated in lead, with TEL representing 85 percent of its business in 1996. Although CEO Dennis Kerrison has announced his intention to develop non-TEL businesses into core businesses by 2005, "even the most extreme estimates allow for the continued use of leaded petrol in some parts of the world until at least the year 2010." Off the record, company officials admit they could be selling lead in 2020 and beyond.

Until then, Octel, "through the specialist facilities of Octel Environmental, provides a range of decontamination, destruction, removal and recycling services to refineries throughout the world to help to reduce the environmental impact of toxic lead residues." Under its Product Stewardship Programme--"a public service," Octel calls it--fifty tons of lead alkyl sludge were removed from New Zealand refineries as part of a cleanup beginning in 1996. Octel had supplied the refineries with 4,000 tons of TEL annually for years. So, in a crowning irony, poisoned motorists in New Zealand and around the world will, through higher gasoline prices, pay Octel (and Ethyl) to clean up the mess the TEL barons and their refinery customers made.

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